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No. of Recommendations: 2
arrete has questions:

1. This is easy - I assume, even though you talk about fewer than 10 stocks, the same methodology could be used if you have 1 stock that overwhelms your portfolio, even if you have lots of different stocks. DH has about 130 stocks, but one, GE, makes up 40% of the total worth. He can't do anything about it now without taking a penalty because it is in a 401k he can't touch (except to get the dividends)

I'm not sure what your question in there is. Are you asking if you would use the same methodology to calculate the withdrawal rate for a portfolio that has 1 stock dominating the portfolio and other stocks making up a much smaller portion as the methodology you'd use if you had many stocks, none of them making up (let's just pull a number out of the air) more than 5% of your portfolio? I believe the answer to that is "yes". I expect the mathematical answer you'll get is a portfolio with much greater risk, but I haven't run the numbers on any examples.

2. Bigger (more complex) question. Part of the formula used to figure the SWR of a concentrated portfolio includes the S&P 500. GE makes up a significant portion of the S&P 500 (3.2% as of the June 2002 report). How do I account for that? DH also hold about 5% of his assets in Microsoft, which also makes up 3.2% of the S&P 500.

I would ignore the overlap in S&P 500 and any individual holdings; by ignore, I mean treat the individual holdings that also happen to be in the index the same as others that are not in the index. You are simply trying to get a measure of risk. The risk of S&P 500 already takes into account that GE is in it. I would not make an adjustment for that, but I could be wrong. In the example intercst gave, he included stocks such as GM that are also in the S&P 500, and he made no adjustment that I could see for that fact.

I'm sure intercst will be along shortly with better answers.

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